Although Bank of America’s unrealized losses on securities increased from the second quarter to $131.6 billion in the third, the bank does not anticipate that the portfolio would result in actual losses over time.

Since March, investors have increased their scrutiny of realised losses. In the midst of the biggest industry unrest since the 2008 financial crisis, Silicon Valley Bank collapsed due to the sale of a portfolio of its securities at a steep loss.

According to analysts, Bank of America’s likelihood of selling the securities at a loss is very low due to the lender’s stronger capital and solid liquidity from customer deposits. Additionally, holding securities until maturity allows it to avoid mark-to-market losses.

Even if there is little upside potential in an environment with rising interest rates, banks use the held-to-maturity label to purchase less risky securities that shield them from the downside.

“All of these are unrealized losses are on government- guaranteed securities,” Bank of America’s chief financial officer, Alastair Borthwick, told reporters on conference call discussing third-quarter earnings. “Because we’re holding them to maturity, we will anticipate that we’ll have zero losses over time.”

In the second quarter, Bank of America had disclosed early paper losses of $106 billion.

The second-biggest U.S. lender, Bank of America, reported in a filing on Tuesday that it possessed held-to-maturity securities worth roughly $603 billion, down from $614 billion in the second quarter.

Analysts have noted that the second-largest U.S. lender’s capacity to benefit more from investing its capital in money markets or other assets with better returns has been limited by its holdings of low-yielding assets.

“The bank has one of the lower overall yields on its securities book, and that securities book is there to stay for a while,” said Eric Compton, analyst at Morningstar.

According to an estimate from Moody’s, U.S. banks may be dealing with unrealized losses in their securities portfolios of at least $650 billion after the third-quarter bond market meltdown was caused by expectations of interest rates remaining higher for longer.

That represents a 15% increase over the $558 billion in losses they had at the conclusion of the second quarter.

In its HTM portfolio, JPMorgan Chase recorded unrealized losses of $40 billion during the third quarter.

For the third quarter, Citigroup withheld information on paper losses on its portfolio. At the conclusion of the second quarter, they were $24 billion.

Other than the disclosures, neither bank offered a remark.

According to Allison Nicoletti, a professor at the University of Pennsylvania’s Wharton School, the growing unrealized losses are a “non-issue” from an accounting standpoint, despite the fact that the securities holdings are an economic burden.

“If you would have waited, you would have gotten a higher yield on the bonds,” she said. Still, “these are paper losses — this is a problem only if you have to sell them.”

Banks have the option to invest excess funds received from customers by purchasing bonds that they hold to be sold at market rates. Alternatively, rates on securities held to maturity can be locked in.

(Adapted from Reuters.com)